Fed’s Policy Shift May Inject Trillions to Stabilize U.S. Treasury Market

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Recent sudden crashes in the capital markets really boil down to one thing: a squeeze in U.S. dollar liquidity. My view hasn’t changed — since U.S. Treasuries are essentially a long-term liquidity drain, there must always be “pipes” supplying water to them. One pipe is the U.S. banking system, and another is the yen carry trade.

If both of these pipes dry up for different reasons, then the next pool of liquidity is cryptocurrencies. If that still isn’t enough, the only remaining source is the stock market.

The Federal Reserve is about to ease liquidity requirements for banks, which is expected to unleash trillions in liquidity to help plug the black hole in the U.S. Treasury market.

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